on property acquired with farm loans and the level of insurance that borrowers needed to have had as a condition for obtaining an emergency loan. Establishes a maximum indebtedness level of $500,000 for disaster emergency loans. Allows FSA to (1) contract with commercial lenders to service the farm loan portfolio (2) use private collection agencies to assist in collecting delinquent amounts. Requires borrowers to pay at least a portion of the interest on their loans as a condition for having the terms of their loans rescheduled or reamortized. In particular, borrowers who are unable to make their farm loan payments, but who are not 90 days past due, can have the terms of their farm loans rescheduled or reamortized if they pay a portion of the interest that is due on the loans. The Secretary of Agriculture is to establish the level of interest payments that borrowers need to make. The FAIR Act also clarifies FSA's basic lending mission by, among other things, emphasizing that its assistance is to be temporary. Additionally, the act builds upon other legislation enacted earlier in the 1990s that emphasized helping beginning farmers and ranchers get started and progress in farming or ranching. The act also reinforces past congressional emphasis on shifting farm lending from direct loans to guaranteed loans. More specifically, the act, among other things, does the following: Sets term limits for the receipt of direct farm ownership and operating loans. A person must have operated a farm or ranch for at least 3 years to be eligible to obtain a direct farm ownership loan. A borrower can obtain direct farm ownership loans during a 10-year period that starts when the person first obtains a farm ownership loan. A borrower can obtain direct farm operating loans during 7 years; these may be consecutive, nonconsecutive, or a Encourages the graduation of direct loan borrowers to conventional credit by allowing a 95-percent guarantee on loans made by commercial lenders to refinance the existing direct loans that borrowers have. Increases the guarantee percentage allowed on loans made by commercial lenders to beginning farmers and ranchers who participate in a farm ownership loan program that is targeted to them. Targets farm properties that are in FSA's inventory for sale to beginning The changes in the FAIR Act address many of the problems that we have reported on in the past. While it is too early to gauge their impact on the financial condition of the portfolio, we believe that, if properly implemented, they will reduce the financial risk associated with the farm lending programs. We plan to continue to monitor and report on the USDA's progress in implementing the FAIR Act's credit provisions. This concludes our prepared statement. (150427) FSB First State Bank February 20, 1997 Congressman Combest 1527 Longworth Washington, D.C. 20515 Congressman Combest: If I I understand that there will be testimony in Lubbock on I believe the FmHA guarantee program is worthwhile and Sincerely, Mile Mike Schnell MS/rec P.O. BOX 247 Spearman, TX 79081 8061659-5565 Congratulations on being selected to testify before Congressman Combest and the Agricultural Sub Committee. I I would appreciate you conveying my thoughts on the FmHA guaranteed loans. believe the intent of the FmHA was to help farmers who could not obtain bank financing. With the inception of the guaranteed loans this took a lot of pressure off of the FmHA. The theory behind the guaranteed loans is good. However, the application process is cumbersome and almost always requires outside help in the preparation of the forms. As with most government agencies you are required to give the same information in 6 different places. Most bank personnel that I am acquainted with do not have the time to properly fill out this volume of paper, much less being able to interpret the often gray regulations. Additionally, I would like to add that the settlement process is slow and awkward. I have known instances whereby it has taken almost 2 years to collect on the guarantee. The regulations are so overwhelming that if the agency so desires to renege on the guarantee there is almost always an out for them. Certainly guaranteed loans would be an attractive program for our community, but due to time and paperwork involved and the horror stories regarding collection we have not actively pursued them. I would be in favor of any positive efforts to help streamline and make the process more effective for the farmer and the banker. This is a program that could be vital to our area and the entire agricultural sector. Member FDIC FirstBank National Association February 14, 1997 Don Townsend, President First National Bank P.O. Box 337 Spearman, Tx 79081 Dear Don, You have asked me to provide a letter of our experiences with FmHA guaranty loans. Currently FirstBank Southwest has three FmHA guaranty loans, two of which just The loan in loss claim status was a Loan Note Guarantee (through the Parmer County I realize that we may have made some mistakes, but we have serviced farm production |